A recent decision in Ontario1 highlights yet another consideration in the drafting of termination clauses that seek to limit an employee’s entitlement to minimum employment standards, that is ensuring minimum benefit continuation.

On October 19, 2010, Deborah Stevens was terminated from her employment as Head Golf Professional at the Riverbend Golf Community, which was operated by Sifton Properties Limited (“Sifton”). Ms. Stevens was terminated without cause and Sifton paid her out the minimum employment standards amounts which they believed were owed under her employment agreement. Specifically, she received three weeks’ pay in lieu of notice and her group benefits were continued for a period of three weeks. She was also paid her outstanding vacation pay, statutory holiday pay, and a discretionary bonus for the partial year of 2010.

Ms. Stevens brought a wrongful dismissal action against Sifton arguing that the termination clause set out in her employment letter lacked the clarity needed to be enforceable and displace the common law presumption of reasonable notice. If successful, the termination clause would be rendered “null and void” and she would be entitled to greater amounts owed under the common law.

In an attempt to limit Ms. Stevens’ entitlements on termination to those set out in the Ontario Employment Standards Act, 2000 (the “ESA”), the employment letter set out the following:

13 (b) [Sifton] may terminate your employment without cause at any time by providing you with notice or payment in lieu of notice, and/or severance pay in accordance with the Employment Standards Act of Ontario.

(c) You agree to accept the notice or payment in lieu of notice and/or severance pay referenced in paragraph 13(b) herein, in satisfaction of all claims and demands against [Sifton] which may arise out of statute or common law with respect to the termination of your employment with [Sifton].

The motions judge dismissed the first argument advanced by Ms. Stevens regarding the clarity of the language of the clause. However, Ms. Stevens also argued that the termination clause violated the ESA because it failed to confirm her entitlement to benefit continuation through the minimum period required by the ESA.

“Catch-all language will not save an otherwise deficient termination clause.”

The Court found that Sifton had not referred to benefits expressly, but had done so implicitly through an exhaustive statement, which set out that that the termination entitlements were “in satisfaction of all claims and demands against [Sifton] which may arise out of statute or common law”.

This catch-all statement was interpreted by the Court to mean that Ms. Stevens’ entitlement to benefits, which arose out of the ESA, would be taken away upon payment of the required pay in lieu of notice or severance pay. The Court found Sifton’s all-inclusive statement to be an impermissible exclusion and denial of the benefits to which Ms. Stevens was entitled under the ESA.

Even though Sifton had actually maintained Ms. Stevens’ benefits for the notice period, the termination clause was still regarded null and void, and Ms. Stevens was entitled to common law reasonable notice.

Lessons for employers

  1. Check for benefits language

In addition to notice (or pay in lieu of notice) and possibly statutory severance pay, the ESA also entitles dismissed employees to continuation of benefits for the length of the ESA notice period. It is now clear that courts can strike down termination clauses that do not adequately account for minimum benefit continuation during the statutory notice period. Therefore, forgetting to address benefits in a termination clause can now lead to an employee being entitled to common law reasonable notice rather than the restricted statutory notice the employer intended to provide.

  1. Watch the use of “catch-all” termination clauses

In this case, the “catch-all” language included in the termination clause was likely intended to signal to Ms. Stevens that she would receive no more than the amounts specified. These clauses are still recommended because they seem the ideal way to communicate to an employee his or her full entitlements on termination. However, this case also stands as a reminder that, by including such “catch-all” language, employers must be certain that the balance of the termination clause ensures minimum employment standards compliance. “Catch-all” language will not save an otherwise deficient termination clause.

  1. Making sure that an employee receives all statutory entitlements will not save the day

Sifton attempted to do right by Ms. Stevens by ensuring that she received all of her ESA entitlements on termination, including the minimum benefit continuation. However, this was not enough to correct the deficiency that was found to exist in her employment letter. The letter was rendered null and void and she became entitled to common law reasonable notice.

Drafting termination clauses which limit employees’ entitlements to minimum employment standards is very tricky business. It is because of decisions like Stevens that we encourage employers to conduct regular reviews of their employment agreements to ensure that they contain what is considered to be the optimal language for limiting payments on termination